An Investment Banker’s Guide to Evaluating and Selling Your Business

Kyle RackiSeptember 28, 2017 | 20:47

On this episode of Proposify Biz Chat, I’m joined by Dave Kirby. Dave has 10 years experience in investment banking, mergers and acquisitions, and has executed over $5 billion in transactions over his career. He’s now the managing partner at Peak Technology Partners, and I’m talking with him today about preparing your company for sale and how to protect yourself.

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What it’s about

With Dave Kirby’s extensive experience in investment banking, mergers and acquisitions, and with startups, he’s a wealth of knowledge when it comes to selling businesses.

In this interview, Dave talks about how to prepare, evaluate and sell your business, and the steps you should take to protect yourself. He breaks the sales process down into reasoning, organization, finances, and the importance of staying focused on your valuation.

Takeaways

Know why you’re selling your business

There are many different reasons for selling your business, whether it be that a buyer has expressed interest, you’ve grow it to a point and now are proactively looking to sell it, or something unexpected has come up and you need to sell quickly.

Dave says it’s important to know why you’re selling, so you can explain to potential buyers. Having a solid explanation for why you’re selling can set you up for a successful sale.

Get organized before talking to buyers

Regardless of why you’re selling, there are a lot of steps that need to be taken first. If you want the sales process to run smoothly, Dave says you need to be organized before you start talking to anyone.

Once a buyer expresses interest, you don’t want to make them wait 2-3 weeks while you get corporate documents, historical financials, organizational materials, and sales and marketing materials in order. These are the documents that investors and buyers are most interested in, so have them prepared ahead of time.

Get your financials in order

Obviously it’s important to be keeping track of your financials if you own a business. Having them clearly documented isn’t just important when it comes time to sell, they’re critical.

You want to have at least three years of financials to show buyers or investors. The three most common financial documents they look for are your balance sheet, income statement, and cash flow statement. *Little Pro Tip: Have these numbers broken down monthly, as that’s what buyers prefer to see.*

The buyer or investor will end up doing their own modelling and quantitative analysis, but your documentation allows you to backup your expected growth and valuation, and in turn, give you more leverage.

Don’t waste time talking to buyers who aren’t a good fit

It’s important to be thoughtful and strategic about who you have conversations with rather than wasting time talking to buyers who aren’t a good fit. From a first glance, someone may seem interested, but a deeper look can reveal their rationale for buying, their ability to pay, and whether or not they’ve done acquisitions in the past.

“Getting a better sense of who your interested buyers are can tell you if they’re actually looking at you seriously, or if they're just sort of fishing for information.”

Be careful sharing confidential information like customer contracts and pricing with competitors. This is important information for a buyer, but be wary of sharing it until a letter of intent (LOI) has been signed showing their genuine interest in purchasing your business.

Stay focused on your valuation

The most important factors investors or buyers look for in terms of a driver of valuation are growth and profitability. If you’ve been growing 10% a year for five years, it’s not as attractive as a company that has been growing 50% year-on-year over the past five years.

Because there is so much subjectivity in valuation, competitive tension can drive the momentum of buyers and investors. Dave advises to never go down the selling path with only one person. If you’ve got more than one buyer, you can play them off each other to help keep great deal terms and maximize on valuation.

Show notes

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About the show

The Proposify Biz Chat is hosted by Kyle Racki, co-founder and CEO of Proposify proposal software. Each week,
Kyle chats with friends and special guests about tips and strategies to help entrepreneurs, startups, and
agencies grow profitable businesses.